It has always been with us, and it always will be. Dealing with it requires good judgment and a sense of balance; it involves degrees of uncertainty and, invariably, an element of danger. Dealing with it politically is quite another matter.

It is risk. This collection of essays has illustrated the ways in which, and the extent to which, the Environmental Protection Agency’s risk management policies have gone astray. Some of EPA’s failures—clean fuels regulations that benefit ethanol producers; a Superfund program that has created a vast pork barrel-conform to the traditional political pattern of favoring special interests under the guise of serving the public interest. Other failures fall in the category of misguided risk selection: The Clean Water Act requires enormous investments to abate so-called pollution that has no discernible effect on water quality, while Superfund mandates extravagantly expensive “permanent” treatment options, with the result that hundreds of sites remain entirely untreated.

The challenge to improve on this performance is evident and urgent. According to the EPA, America now invests well in excess of $100 billion per year in environmental protection. We should seek to ensure that these vast resources are directed to abate genuine risks and that they are used as efficiently as possible.

However, inefficiency and misguided risk selection may not be the EPA’s most serious failures. As disappointing as these outcomes are, they are not altogether surprising in light of our experience with grand social schemes in general. When it comes to inefficiency and misdirection of resources, there is no great difference in principle between the war on poverty and the war on environmental risk. Rather, the distinctive, and most fateful, consequence of environmental regulation has been a complete transformation of public expectations regarding risk. We expect insurers to mitigate the effects of unfortunate events, not to prevent their occurrence, and w expect doctors to cure diseases (most of them anyway), not to make us immortal. Not so with governmental risk managers: We have come to expect that the EPA—and, for that matter, the Food and Drug Administration (FDA) and other “social” regulatory agencies—will eliminate risk. This expectation is as much the result of modern environmental risk management as it is its source: As described by several contributors to this volume, statutes such as Superfund, the Clean air Act, and the Clean Water Act incorporate binding commitments to zero risk and an absolutely clean environment.

By promising the impossible, though, government sets itself up for failure. The result is an environmental version of Gresham’s law: Utopian but horribly flawed regulatory schemes drive out more realistic, imperfect, but acceptable, policies. Having been promised, and having come to expect, a totally clean environment, the public is not readily persuaded that it must make do with less. The utopian pretensions of environmental programs, and the public misperceptions induced by those pretensions, pose a most serious obstacle to environmental policy reform.

One may be tempted to conclude that the combination of government-sponsored ignorance and entrenched interests may doom any prospect for more sober, realistic, and effective environmental risk management. However, growing disenchantment with current “command and control” policies may create a basis for reform. Moreover, one can at least hope that the dynamics of inflated public expectation will, in the long run, do more to undermine than to sustain the demand for comprehensive regulatory schemes. Government cannot possibly succeed in attaining the unattainable, and as the real and perceived failures multiply, we may eventually begin to address the question of what has gone wrong with the seriousness it deserves.

Broadly speaking, the reforms now under discussion fall into two categories. One of these comprises managerial reforms such as an emphasis on sound science, improved risk assessment procedures, and better interagency cooperation. As I will argue below, such reforms can remedy the more fundamental flaws of environmental regulation only to a limited extent and only if they change or at least counteract the political and institutional incentives that currently produce inefficient regulation and biased risk selection. The second category of reforms contains “incentive-based” or “market-based” regulatory tools, such as emission fees and tradable emission permits. Such devices represent a welcome departure from the exclusive reliance on command and control regulation, and some of them might result in more efficient, less wasteful environmental regulation, which is a worthy goal. However, as I shall argue, incentive-based environmental regulation is no panacea and may even exacerbate some of the defects of command and control regulation. The fundamental problem of market-based regulation is that risks would continue to be selected and regulated on political grounds, with all the attendant opportunities for special interest mischief, political abuse, and false promises.

For this reason, the case for private environmental risk management deserves consideration. Reconsideration would be the more accurate term: Until not so very long ago, risk management was considered predominantly a private responsibility. Most significant resources at risk were privately owned, and their owners protected them—in the extreme case, through use of the courts—against trespass, theft, and other risks. Individuals negotiated on risk matters, typically through contractual agreements. Private parties paid to shift risks to private insurance firms; private rating services provided information about the nature and level of risk in countless fields.

Today, however, private risk management devices are frequently dismissed as impractical or as objectionable for other reasons, at least in the environmental context, and such dismissals are usually accepted as soon as they are voiced. America seems to have fallen in love with political risk management. How did this romance start?

Date:

Tuesday, December 31, 1991

Subtitle:

Smith Chapter from the Book & Environmental Politics: Public Costs And Private Rewards